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The Julio Velarde information has got the Eurasia treatment in this take note out today. Humala’s decision to keep Central Bank or investment company President Julio Velarde in his post, announced in an interview Sunday evening (he added that Velarde accepted to remain) is the strongest indicator to day that his administration will pursue relatively moderate macroeconomic policies. Humala appeared to choose a fresh originally, less conservative leader for the panel, so the decision to keep Velarde is an optimistic surprise. The next most significant decision for Humala is who he’ll choose to head the Ministry of Finance.
The strongest applicant for the post appeared to be Kurt Burneo, who was former President Alejandro Toledo’s main economic advisor and became a member of the Humala campaign following the first round of the presidential election. Burneo has experience in office and can be regarded as more moderate than Felix Jimenez, Humala’s long-term economic advisor, but stocks a few of Humala’s views about the need for a larger role for the condition in the economy.
Now there is growing speculation he will choose to the post Luis Miguel Castilla, a moderate US-trained economist with a far more technocratic profile than Burneo. Friday Speculation grew after Castilla resigned from his post as Vice-Minister of Financing last. Humala is definitely more available to appointing independent technocrats to the central bank than to head the Ministry of Finance, a post he views as proper given its role on budget issues and fiscal plan highly. As a result, decision to appointing Castilla would represent another strong early signal of moderation.
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Despite the recent positive advancements, we continue to expect economic plan to have a negative submit comparison to the past administrations-particularly in year two and three of his administration. Humala is well aware that sending positive indicators to traders early in his administration is crucial to avoid a world of uncertainty that could dampen investment, financial growth and taxes collection.
But he also desires to broaden the role of the condition in the economy through cultural programs, infrastructure investment and an active industrial policy, tending to require more spending. He’ll increase spending gradually and seek to financing new expenses with higher taxes profits on mining and procedures to fight taxes evasion and corruption. However, such measures look unlikely to generate additional revenue equal to 3% to 4% of GDP as the federal government expects. Because of this, reconciling conventional macroeconomic policies with his more interventionist goals won’t be easy.
As we have been arguing, if Humala faces challenging decisions on his administration later, he will probably lean towards a more heterodox economic policy mix. The trajectory of Humala’s approval ratings is a key variable to follow. If his authorization ratings don’t recover or drop further in his first year in government, his incentives to pursue insurance policies that are less-investor friendly increase over time. As the recent decline in support for him probably added to a change toward moderation, if that doesn’t yield political or financial results Humala could be tempted down the road in his mandate to look at a more heterodox approach. The fact that Humala’s acceptance ratings lowered so sharply and so early is worrisome.
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